Sometimes when you explain to people that some of the most complicated financial transactions in the country were just side bets, they don't really believe you. They think it's an oversimplification. We couldn't have wrecked the global economy because some people made side bets. These are sophisticated bankers with sophisticated financial instruments, so it must be more complicated than that. It isn't. They bet one another, whoever lost got paid by the American taxpayer.
To be fair, sometimes they had the money to pay off one another without government bailouts, but not often. That's because they were largely betting with money they never had. AIG is the perfect example. Their executives made hundreds of millions of dollars in bonuses from the early wins in these bets, but then stuck the taxpayers with a $182 billion bill when they lost.
A credit default swap is when you bet that a certain asset is going to default. If you're wrong, then you have to pay a little bit. If you're right, you get paid a ton. So, AIG collected a lot of little winnings when they bet that mortgage backed securities would not go into default. But then when they did go into default, they lost big.
So, what does all of this have to do with us? Well, Hank Paulson, Tim Geithner and Ben Bernanke in their infinite wisdom decided that we should pay AIG's bets for them. Did they go back and take the money the AIG executives got for their earlier so-called winnings? No, of course not. Did they even inquire into whether these bets were on actual assets that the other parties were on the hook for? Apparently not.
Let me explain that more. If you bought a package of mortgage backed securities and wanted to insure it in case anything went wrong, that's a fairly normal derivative. That basically works as insurance for your security. So, if we paid off people who actually owned those securities, it still wouldn't be right in my opinion but it would be a lot more understandable. The argument would be that it would destabilize the economy too much if all of the people holding the mortgages all of sudden lost most of their value.
But what if they didn't hold the mortgages, they just bet on them? That's like the difference between bailing out the Dallas Cowboys to help the local Dallas economy versus bailing out bookies who bet too much on the last Cowboys game. The latter is what we did with AIG. We paid off people's bets for almost no reason.
I explain all of this because it's very important that you understand that when we paid $62 billion to AIG "counterparties," we weren't saving the economy, we were paying off the bookies. The money we gave them didn't go toward saving one house or one mortgage or even a package of mortgages or even investors who bought the packages of mortgages. It went to paying off people who made side bets on the mortgages (and even sometimes put down bets on a made up collection of mortgages that didn't even exist in the real world called "synthetic" collateralized debt obligations).
This is insanity. When you understand what really happened, you have one natural reaction - I want my money back. It's like we paid Donald Trump for a bet he made against Steve Wynn. Why did we do that? I don't give a damn if The Mirage or Caesar's Casino won. Why did you pay them with my money?
So, we're now starting a campaign to get our money back. I'd love to get the whole $62 billion paid out to the AIG counterparties (let alone the whole $182 billion we've sunk into AIG all together). But, we're going to start out nice and modest. We'd like to have Goldman Sachs pay us our $12.9 billion back that they got from AIG.
That's all taxpayer money. All of it went to Goldman for some silly bet they made with a buffoonish company that never had the money in the first place. As "sophisticated investors" they should have realized that AIG never really had the cash to pay them.
It's like making a million dollar bet with your deadbeat friend. Do you really expect to get paid when he doesn't have ten bucks to his name? How sophisticated can you be if you don't even realize that your counterparties are broke? So, sad day for you, you made a bet with the wrong guy. That's capitalism, baby. Go home, lick your wounds.
Except as we all know, that's not how it worked out. Instead the former CEO of Goldman Sachs, Hank Paulson decided to give them the money anyway, from the United States Treasury. Paulson had made $700 million dollars earlier when he made the same kind of deals as the head of Goldman before he became our Treasury Secretary. Not much bias there, right?
So, other than this enormous conflict of interest, why target just Goldman Sachs? Many reasons. They were one of the largest beneficiaries of this "backdoor bailout" from AIG. They were the ones who set up many of the securities in the first place. In fact, they sold $23 billion worth of this junk to AIG (they're lucky we're not asking for all of that back).They set them to blow and then bet against them. And they said they didn't need the money away. Great, then we'll take it back please.
Yes, they actually said they didn't need the taxpayers to pay them. They said many times on the record that they were "properly hedged" and that they could have gotten paid off by other companies and didn't need AIG to pay them. Fantastic! Out with it. We're going to be generous and not charge much interest, so we'll take a check for $13 billion made to the United States Treasury.
I'm not kidding. We are going to start applying pressure to both Goldman and the Treasury Department to return that money to its rightful owners, the American taxpayer. Of course, we need your help. We want everyone across the political spectrum to put pressure on the Treasury Department to ask for that money back and for Goldman to give it back.
I invite conservatives, libertarians and tea party activists to join us as well. Don't you want your money back? Weren't you angry about the bailouts? Don't you have a sense that the people in Washington and Wall Street are screwing you? Well, this is how they're doing it. Time to stand up and fight. Tell Goldman not to tread on you.
To show you how nonpartisan this is, the first protest will be aimed at one of the one guys most responsible for this atrocious decision - Tim Geithner. He is our Treasury Secretary and should be fighting for us and not for the bankers. He can fix his original mistake (he was at the New York Fed when they decided to give these backdoor bailouts at a hundred cents on the dollar when no one thought they were worth anywhere near that much) and get our money back from Goldman.
I have a question for the tea party participants, have you ever wondered why you've never protested the one guy in the Obama administration most responsible for the bailouts and the economy? That's the Treasury Secretary. And the reason you've never protested him is because the corporate front groups who organize your protests love Geithner and want to look out for him. Isn't it time you corrected your mistake, too?
Come join us. Let's do a real protest of the people who caused this mess in the first place. And let's get our damn money back.
Join us on Wednesday, June 9th at 1:30PM in front of the Treasury building to demand our $13 billion back from Goldman Sachs. First job is to get Geithner to recognize that he should have never given that particular money to that particular bank for that particular transaction. Or to come out and justify his actions. Let him step out, greet us and tell us why it was such a smart idea to pay off AIG's side bets with Goldman. I'll be looking forward to that.
And I'll be looking forward to seeing you at the protest, no matter what your politics are. You can RSVP by going to the Facebook page for this event. See you there.
UPDATE: Progressive Change Campaign Committee has joined our effort now and we are doing a joint petition to get our money back. Please sign the petition here so your voice can be heard on this even if you can't make it out to the DC protest.
Everyone in the country should be able to agree to this. I was just on the Dylan Ratigan program on MSNBC and even the conservative on the panel agreed. Sign the petition and help get our money back.
UPDATE II: Campaign for America's Future has now joined us in promoting this protest. The event will be held right after the America's Future Now convention is over. They will direct everyone who is interested straight to this protest. It's great to have the cavalry join us. CAF is one of the strongest progressive groups in the country and we're very excited about their support.
You can find out more about all of the events we're holding in DC that week by clicking here.
Follow Cenk Uygur on Twitter: www.twitter.com/TheYoungTurks
Can the U. S. government unilaterally revise the contracts between AIG and its counterparties? I doubt it. Even if the original contracts were revised to say that AIG owed less, the counterparties would owe the money to AIG, not to the U.S. government. How does the government get the money from AIG? Can the government unilaterally accelerate AIG's payments on loans? Can the government change the terms of its preferred stock unilaterally? Again, a private party cannot do that; I do not know if governments can.
I don't think that there can be one law for Goldman and another for every other bank counterparty.
My point is that it is easy to be enraged. Just because you think that a party acted wrongly does not mean that what they did is illegal. In our society, thank goodness, only illegalities carry judicial penalties. The government cannot confiscate assets at will.
For a very different view of Geithner and the turnaround of the financial system, read Joshua Green's article in the April, 2010 issue of The Atlantic. Mr. Green argues that the rescue of the financial system has cost the taxpayer much less that could have been expected when compared with other financial crises.
That would make a dandy law school exam question. Possibilities that come to mind (not all of which would stand up to closer scrutiny, but none of which are frivolous IMHO) are: Equity (not a theory: an entire body of law). Unjust enrichment and its cousin, in quantum meruit. Fraud in the inducement. Unilateral mistake. Powers under the Commerce Clause or related to national security in time of war or related to any statutory or regulatory violations. The right of the legislature to levy taxes. And, most especially, the right of the courts to reform or overturn contracts that lie against public policy. Plus--if the government simply asks, as a political matter not coupled with a threat of or the exercise of governmental power--moral suasion and an appeal to enlightened self-interest, as a business decision (since being widely despised isn't usually an advantage in business dealings).
"Can the U. S. government unilaterally revise the contracts between AIG and its counterparties?"
The courts can--if a party in interest brings the matter before them and they find a valid basis to do so. Such a basis--if not a profusion of bases--may well exist.
"Just because you think that a party acted wrongly does not mean that what they did is illegal."
Yes, but it's equally true that being enraged doesn't mean that there was no illegality.
However, it could be that Goldman Sachs has virtually paid everyone in the country off. This would be done by entangling them somehow through high return investments. Goldman Sachs is the golden goose for the politicians it appears.
One point though- TAKE , TAKE IT BACK! there is no 'ask' they did not ask for it when they stole it, they took it
and may i suggest that eggs are free speech? Go TYT Army !!
In June 2009, Goldman Sachs derivative liability was 33,283% of their assets. It's great when you can gamble with someone else's money and take the winnings and ignore the losses.
http://thebankwatch.com/2010/03/11/goldman-sachs-derivative-liability-33823-of-assets/
Our country was founded on the simple concept of "No taxation without representation". It's what led to our "representative" form of government.
The current financial boondoggle, as well as the oil leak in the gulf, the no real reform health reform bill, the lack of an energy policy, and the latest no oversight financial oversight regulations are proof that our representative model of government works.
Members of Congress are paid $174,000 per year by the American taxpayers. They receive over a million dollars a year (each) from corporate lobbies.
They "represent" their real constituency, the corporate lobbies. As a recent Disney film franchise would say............."It's just good business"
http://www.theatlantic.com/business/archive/2010/05/the-net-worth-of-the-us-presidents-washington-to-obama/57020/2/
Of the nearly 60 founding fathers, only 4 did not own slaves. In 1784, George Washington hired a dentist to extract 9 teeth from his slaves to transplant into his own nearly toothless jaws.
Laws were changed to make the system more "just". I submit it's time for another law change to be enacted. One that applies only to members of congress. It's over due, and would promote a more "just" system of government.
The majority of the founding fathers eventually freed their slaves. This was of substantial cost to them financially. It was the "right" thing to do. Congress should address the National disgrace of legalized bribery, campaign finance. It also is the "right" thing to do, but so far, they have not shown the needed integrity to do so. Greed is not the sole prerogative of business. Elected officials suffer from it as well.
An excellent example of a profundity I, sadly, have only recently been able to verbalise. If one is indeed an expert and honestly wishes to convey ones wisdom, no matter how complex the subject is or has been made to seem, then one should be able to reduce that wisdom to a simple analogy a layman can understand.
If your well paid advisors cannot do this, they either; dont understand it themselves and/or they have a sleazy hidden agenda. Either way, plan to tell them to take a walk, ASAP.
E.G.
Act 1 Scene 1
Client:
"whats a CDO"
Advisor:
(Rolls eyes & gives client meaningful "what are you? Some kind of moron? look")
"Its a collateralised debt obligation".
Even if he understood it was a side bet, to use the term (doubtful), it would be heretical bad career move in the corporate paradigm of finance.
To the author - "RESPECT"
The author also omits many facts about collateral AIG had pledged with GS that was returned.
Look at the SEC at what they've accomplished to date...Have they exposed the 200 million lottery winner that bet Bear Stearns would fail in 9 days or who shorted Bear Stearns & Lehman...Of Course not...This is the Greatest Fraud the world has ever seen and you know what, between the SEC & the AG they can't find one Crook...If it wasn't so sad it would be hilarious, then again who expects them to turn on their friends and prosecute them...
Looks like we're going to have to pull a "Marco"...Identify the crooks...gather all the evidence against them, then cross your fingers that someone is going to listen to you...Or better yet...Jack (24) is finally available but its gonna get dirty...
You really believe you're gonna change Geithner's mind...LOL..."He has a Heart of Gold-man"...
Since US citizens do not get taxed at source, this form of resistance is highly probable and achievable, if organized consensually at the grass root level.
The biggest act of fraud has been committed against the American people…it is plain for all to see.
I see no reason why Americans today can’t do this …Just like rebellious American colonists who used various methods of tax resistance to resist the British in the years leading up to the American Revolution.
How I wish we had did not get taxed at source here in UK. I hope Americans lead the way again …and the rest of the world will always follow you.
So, for the record...this is one hard right winger that stands in your corner. Let's get the $ back!